March 19, 2012 12:32 PM

U.K. Firms Need to Cut 6,000 Attorney Jobs in 2012, RBS Report Claims

Posted by Chris Johnson

U.K. law firms must lay off almost 6,000 more lawyers this year if they want to maintain profit levels in the face of falling demand, a new report claims.

Though firms trimmed their attorney ranks by about 15 percent on average during the recession, research released Monday by the Royal Bank of Scotland suggests that "insufficient fee-earner capacity has been removed from the market" and that a further downsizing will be required in 2012 as firms struggle amid a fragile global economy and patchy transactional markets.

"The U.K. market remains over-lawyered," says the report's author, RBS's legal services head James Tsolakis. "In the absence of large new sources of instructions, which we do not expect . . . additional restructuring will be required to further eliminate fee-earner capacity. That chargeable hours continue at sluggish levels is of particular concern, given the significant fee-earner capacity that has been removed from the market over the last two years."

Based on an analysis of firms' financial performance in the first half of the present fiscal year, as well as on current activity levels, RBS concludes that firms need to reduce their lawyer numbers by roughly 5 percent in order to return to the levels of profitability they enjoyed before the downturn.

Given that Law Society data lists almost 120,000 attorneys as practicing in the United Kingdom, the cuts suggested by RBS equal roughly 6,000 jobs. RBS, which alongside Barclays provides banking services to most of the top U.K. law firms, estimates the restructuring would save the profession around £280 million ($445 million) in costs each year.

Linklaters and Dewey & LeBoeuf are among the latest firms to restructure their partnerships. Linklaters is undertaking its second internal review in the past three years, with a total of 35 partners set to leave the firm in the coming months. (The exercise has met with severe criticism internally, and led to managing partner Simon Davies failing to secure a second term in charge despite being the only candidate for the job.)

Dewey, which saw marginal increases in both revenue and profit per partner in 2011, meanwhile, is cutting 5 percent of its attorneys worldwide. The firm recently saw 12 partners—including insurance cochair Michael Groll, corporate finance cochair John Schwolsky, U.S. M&A head Alexander Dye, and two London-based partners—leave for Willkie Farr & Gallagher.

Though the market is "showing little signs of any meaningful recovery," the RBS report estimates that U.K. law firms will achieve revenue growth of an average 6 percent during this fiscal year, which for most firms ends on April 30.

Download the full report here.

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